Divorcing your mortgage can be a tricky process. One of the most common questions we’ve received recently is about the escrow account and divorce. What happens to the money in the escrow account? Before we broach that issue, let’s review a few things about divorcing your mortgage.
To begin, we’d like to correct a common misconception most people have about divorce and their mortgage. Many believe that the divorce needs to be completely finalized before the process can begin – that’s not the case. The team at Mortgage Specialists is equipped to help you begin the process at every stage of your divorce.
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To be free of any and all liability to the mortgage, you have to be released from your financing. This is most commonly achieved through refinancing, payoff, or sale. Unfortunately, it’s more complicated than handing over the keys and relinquishing your payment responsibilities and deeded rights.
Your Existing Escrow Account
After your mortgage is refinanced or paid off through the sale of the home, the remaining escrow balance will be refunded. This refund check is distributed after closing and is made payable to whoever is listed on the mortgage, meaning it could be made out to you and your ex-spouse.
Because the refund check is often made out to both parties, we recommend the divorce agreement specify how the refund check will be dispersed. Doing so will bring the parties to an agreement prior to receiving the check and hopefully help garner everyone’s participation in endorsing and cashing the check.
It is important to note that while you can view your escrow balance on your monthly mortgage statements, the exact amount will likely change. So, use percentages instead of numbers to allocate the remaining escrow balance.
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Your New Escrow Account
If you’re the party staying in the home following a refinance, you’ll need to figure out how much money is needed for your escrow account. The amount needed varies based on the timing of property tax and homeowners insurance payments.
As you can see, there are quite a few things to consider in regard to your escrow account and divorce. If you are getting divorced, we’d love to help you navigate the process of divorcing your mortgage.
Brent Rasmussen, President of Mortgage Specialists, is a Certified Divorce Lending Professional. His experience and education in helping clients navigate divorce loans can help make the process as stress-free as possible. Get in touch with us today by calling 402-991-5153.